The MFSA has issued a guidance document on the Fitness and Properness Assessments which are to be conducted by any applicant or licence holder on a preliminary and continuous basis. The submission of a Personal Questionnaire and undergoing the Fitness and Properness Assessment is required when appointing any individual in relation to a prospective licence from the MFSA or when appointing a new individual to a licensed entity. This therefore applies to companies licensed in the financial services sphere such as funds, investment services as well as EMIs and PSPs, but also those seeking a licence under the Virtual Financial Assets (VFA) licensing regime.
The scope of the MFSA’s guidance document is to highlight the necessary due diligence measures which will ultimately provide a level of assurance to the MFSA that the applicants are willing and capable to fulfil their obligations under the legal framework in force. This document is of great importance as it provides clear guidance on a subject that effectively is targeted to raise public confidence in the integrity of the financial services system.
The primary onus of proving that a person is fit and proper rests with the entity proposing that individual and not with the MFSA as the competent authority. The checks which should be conducted by the applicant/licence holder do not replace those conducted by the Authority but should be considered as a first filter and an additional safeguard.
The MFSA adopts 4 main criteria to determine one’s fitness and properness levels. These include Competence; Reputation; Conflicts of Interest and Independence of Mind; and Time Commitment.
A person must demonstrate and provide reasonable assurance to the satisfaction of the Authority of having an appropriate level of knowledge, professional expertise and experience. Persons should have a sound knowledge of the financial services sector and must have a clear comprehensive understanding of the regulatory legal framework, including that relating to AML/ CFT.
An examination of one’s integrity and solvency forms the basis of a sufficient analysis over one’s reputation. A person must generally be of good repute, financially sound and bear no financial burdens whatsoever.
Conflicts of Interest and Independence of Mind
Persons, in their proposed role, should be able to make their own sound, objective and independent decisions and judgments. Independence of mind can be affected by conflicts of interest.
Persons, in their proposed role, must be able to commit sufficient time to performing their functions efficiently and effectively.
In light of the above, when assessing the fitness and properness of a person, the Authority will request that such persons submit a Personal Questionnaire and may request additional information therefrom. Persons subject to a fitness and properness assessment may be asked to attend an interview, individually or with other persons subject to the assessment, with the Authority for it to be in a better position to assess their fitness and properness.
The Authority may of course approve or reject such application after the necessary criteria (as stated above) have been put to the test. It is important to be aware that all final decisions held by the authority on the fitness and properness levels of an applicant are subject to a re-assessment process in those instances where new facts appear. Once the Authority is satisfied that such person is ‘fit and proper’ to enter the financial system, then an approval will be granted once again.
Article written by Dr Cherise Abela Grech and Dr Sean Xerri de Caro.
For more information on the fitness and properness assessment and about the MFSA’s licensing regimes under traditional financial services and for cryptocurrencies, please contact Dr Ian Gauci on firstname.lastname@example.org, Dr Cherise Abela Grech on email@example.com and Dr Sean Xerri de Caro on firstname.lastname@example.org
This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.